U.S. household debt has skyrocketed to the highest level since the 2008 financial crisis in 2022, according to a new analysis by WalletHub. According to the report, the country closed out 2022 with roughly $320 billion more in total debt than it started the year with, and households collectively owed $17 trillion to begin 2023. Among the main drivers of household debt in the U.S. are mortgages and credit cards. To manage the crisis on an individual level, finance experts like Suze Orman suggested that consumers make the following moves.
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Say No to BNPL
‘Buy Now, Pay Later’ (BNPL) has become an increasingly popular option for consumers who can’t afford to cough up the total amount of cash for an item at the time of purchase. This is a bad idea, in the opinion of Orman, who shared the following on her blog: “Buy now pay later options can lead to a financial mess. Surveys show that people end up buying more when they use BNPL because their upfront cost (typically just 25% of the purchase price) is so low.”
Pay More Than the Minimum Due on Your Credit Card
Pretty much every finance expert encourages consumers to pay more than the minimum amount due on their credit card bill every month. Orman is among those that strongly advocate for this responsible behavior.
“I know when you’re just getting rolling, and money is tight, it is tempting to focus on the fact that your credit card statement says you only need to make a minimum payment,” she penned. “The minimum payment is a trap that will end up costing you so much. The interest rate you will be charged on the unpaid balance is going to be 17% or more. If you currently have an unpaid balance, I want you to push yourself to pay as much as you can each month, to get it paid off ASAP.”
Prioritize Needs Versus Wants
Orman begged consumers to ask themselves the question of whether they want something — or whether they actually need it — before they make any purchase.
“A need is something that is essential to your well-being,” Orman indicated. “A want is something you’d like to have, but can ultimately live without if its cost will contribute to financial stress. An example: groceries are a need. Eating out is a want. Give yourself a strict budget for wants so you have more money for saving. And honestly, if you have credit card debt, I would love for you to entirely skip wants for a few months to get the card balance paid off as quickly as possible.”
But remember, even with certain groceries, one must ask the “needs versus wants” question, given that supermarkets and big-box retailers are set up to drive impulse buys.
Ditch Credit Cards Altogether
Orman certainly isn’t the only finance pro with ideas on how to battle household debt. Money guru and billionaire Warren Buffett has a philosophy of avoiding credit cards altogether.
“Interest rates are very high on credit cards,” Buffett once said. “Sometimes they are 18%. Sometimes they are 20%. If I borrowed money at 18% or 20%, I’d be broke.”
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Avoid 30-Year Mortgages
Dave Ramsey, another trusted finance expert, advised against 30-year mortgages.
“Save a down payment of at least 10% on a 15-year (or less) fixed-rate mortgage, and limit your monthly payment to 25% or less of your monthly take-home pay,” a blog on Ramsey Solutions read.
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This article originally appeared on GOBankingRates.com: Suze Orman’s 3 Smartest Tips for Tackling Debt